Weekly Insights #20

February 22: This week, the crypto market experienced another green candle as total network value increased by 11.27%. Rumors about the Samsung Galaxy S10 crypto wallet turned out to be true, Uniswap achieved a better solution than Bancor, which raised $150M during the 2017 ICO craze, and Deutsche Boerse is planning to launch crypto futures. Loom Network’s PlasmaChain staking is live, and we explored the possibility of a temporary Bitcoin block size limit decrease.

NOTEWORTHY NEWS

Samsung’s latest flagship phone will include a dedicated secure storage function designed specifically for securing cryptocurrency private keys. With this announcement, the Galaxy S10 joins a slowly growing list of smartphones designed with cryptocurrencies in mind, including the HTC EXODUS 1 and Sirin Labs’ Finney, both of which were announced last year.

A project funded by a 2017 ICO is facing fierce competition from a brand-new competitor, Uniswap, which was funded by a modest grant. Bancor, which raised $150 million during the ICO craze, was founded to make it easy to trade even illiquid Ethereum tokens. That’s the same mission as Uniswap, which launched in November and is funded solely by a $100,000 grant from the non-profit Ethereum Foundation. Uniswap is a truly decentralized protocol, whereas with Bancor, the company can freeze funds and has to approve the opening of markets for new tokens.

Eurex, a derivatives exchange operated by Deutsche Boerse, is planning to launch futures contracts for BTC, ETH, and XRP. Deutsche Boerse initially expressed interest in such a product in December 2017 and later in September 2018 established a crypto asset unit to explore the potential of distributed technology for financial market infrastructure and new products tied to the crypto asset class.

DIGITAL ASSETS ON THE MOVE

LOOM Introduces PlasmaChain Staking on Ethereum Mainnet

Loom Network has been known to deliver what they promise. On February 18, the Loom Network team announced the launch of Loom PlasmaChain staking. PlasmaChain is a high-performance DPoS sidechain that acts as a bridge between Ethereum and multiple other chains. It supports EVM smart contracts, offers sub-one-second confirmation times and high throughput, and uses Plasma Cash for securing on-chain assets. As stated on Loom Network’s website, it’s like EOS on Ethereum. Just 24 hours after Loom Network’s announcement on Twitter, 5.83% of the circulating supply of LOOM has already been staked. With an ROI of 15% (after the Validator fee) if staking LOOM for 12 months, it seems the market hasn’t reacted to the recent news at all. The LOOM token moved similarly to other digital assets, slightly underperforming ETH by -2.7% and overperforming BTC by 6.6% this week. We believe the news has not really circulated among LOOM token holders yet, and it’s likely some token holders would rather err on the side of caution and opt to wait a bit before staking their LOOM.

THE WEEK AHEAD

Bitcoin Core May Temporarily Decrease the Block Size Limit

The Bitcoin scalability debate used to be about whether to increase the block size limit or wait for second-layer technologies to be developed and resulted in two chains: Bitcoin and Bitcoin Cash. Bitcoin is pursuing scalability via the Lightning Network, while Bitcoin Cash increased the block size limit and is pursuing on-chain scaling. Now there is a new debate, initiated by Bitcoin Core developer Luke Dashjr, about decreasing the block size limit.

The reasoning is very similar to the argument about bigger blocks being problematic. The cost of running a full validating node increases with the blockchain size. The bigger the blockchain, the longer the initial full node sync duration and the costs associated with maintaining it. Blockchain networks increase robustness and decentralization with more full nodes, so the interest is in having as many participants in the network running their own full node as possible.

On the other hand, smaller blocks decrease the number of transactions the network can process and as a result increase the transaction fees, which makes certain use cases not viable. Users might start using custodial services for payments instead of running their own full nodes as a result. Advocates of a block size limit decrease believe that Lightning Network will mitigate the downsides of lower on-chain transaction throughput, as higher fees would incentivize users to start using Lightning Network.

In any case, even if this change slowed the growth rate of the blockchain, it would not impact the already existing size, so the whole argument that this change would incentivize a larger number of full nodes is questionable. The change would without a doubt be contentious, which could result in an even larger split in the community.

CHART OF THE WEEK

When a high percentage of Bitcoin’s market cap consists of unrealized profits, we can infer that investors are being greedy. The ratio drops as prices decline and investors become more fearful. When the unrealized gains turn into unrealized losses, we enter the phase of capitulation and apathy.

This content has been put together by Marko Štemberger and Tilen Držan. Feel free to contact us for any feedback or if you have questions.

Information provided above is not to be considered as an investment advice.

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